Harry Ward
leads the transportation and logistics practice
at The McLean Group, a middle-market investment bank
based in the Washington, DC area. Mr. Ward has executive
management experience in the marine industry and focuses
on mergers and acquisitions for mid-sized companies. He is
a US Naval Academy graduate and earned an MBA at San
Diego State University.
advisors to help guide them through the long and challenging
M&A process. Investment banks provide services to owners,
from evaluating the company’s market value to laying out exit
options and running a full M&A “auction,” which despite the
name is typically a tightly-controlled and confidential market
process with a targeted list of potential buyers. For companies
that aren’t quite suited for the large, recognizable wall street
firms, there are many smaller “lower middle market” invest-
ment banks in the U.S. that tend to have strong experience in
certain market niches. The lower middle market has many
definitions, but a common range might include businesses
with market values of around $10 million to $200 million.
Often, a business owner will engage advisors to explore exit
options a year or more before going to market. During this early
phase, owners will get a sense for the expected range of value
that the company will bring in the market and evaluate whether a
full sale, recapitalization or other ownership transfer best fit his
or her goals. If a company sale is the chosen path, a process be-
gins which takes an average of six to nine months though it can
certainly extend beyond that time frame and in some cases can
be expedited quite a bit. In simple terms, the seller and M&A
advisor will build an agreed-upon list of potential buyers for the
company, often a mix of strategic and financial buyers. The deal
team assembles a very comprehensive confidential memoran-
dum or “book” that is designed to detail everything a potential
buyer would need to know in order to formulate a valuation.
The seller’s M&A advisors reach out to the buyer list with
a basic, anonymous description of the opportunity and inter-
ested parties sign a non-disclosure agreement in order to gain
access to the book. At this point, an involved process begins
in which buyers and sellers exchange information, meet and
negotiate letters of interest and work toward detailed offers for
the company. Offers on the same business may vary widely
in terms of total value and especially deal structure, so the
deal team negotiates with the top few prospective buyers and
eventually enters a period of “due diligence” with the chosen
buyer. Due diligence runs an average of about 60 days, during
which time the buyer and their team of advisors closely ex-
amine the business, legal and accounting details of the target
company, and draft the final purchase documents.
Company Valuation
Company values are determined through intricate review of
company financials and hundreds of other documents, but in
the end there must be a compelling investment thesis for a
buyer to complete the transaction. Final company valuation
reflects the confidence that a buyer has that an acquisition will
contribute to future company earnings or return to private eq-
uity investors. It’s worth noting that the value resulting from
an M&A transaction is the true “market value” of the com-
pany, in contrast with values that might result from a formal,
written valuation. Specialized firms provide formal valuations
for purposes such as stock option valuation, litigation and es-
tate planning, among many others.
In the world of middle market mergers and acquisitions,
company valuations are most often expressed in terms of a
multiple of earnings. Typically, financial reports in the U.S.
will refer to a company’s multiple of ‘EBITDA’ (Earnings Be-
fore Interest, Taxes, Depreciation and Amortization) as a mea-
sure of M&A deal value. In simple terms, EBITDA is a mea-
sure of cash generated by a company and excludes financial
items such as taxes and deductions that can vary widely. By
way of example, Braemar Shipping Services acquired ACM
Shipping Group in 2014 for $87.8 million, which reflected a
12.2X multiple of the target company’s approximately $7.2
million of EBITDA over the preceding 12 month period.
Multiples of EBITDA and other deal metrics are far from
perfect and by their nature they mask important differences be-
tween companies as well as variations in deal structure. How-
ever, these multiples provide a common framework fromwhich
to begin a discussion of the marketplace for private companies.
The market for mergers and acquisitions of private, middle
market companies is highly-developed and requires some
study to grasp the many facets and terms involved. Buyer
types and deal structures vary almost as widely as the target
companies themselves, to say nothing of the diversity of busi-
ness owners and their motivations. Though financial publica-
tions attempt to simplify the market and categorize deals by
assigning multiples, the world of M&A is really composed
of thousands of individual stories, each of which is resolved
through a rigorous and in the case of closely-held businesses,
a very personal process.
Company values are determined through intricate review of company
financials and hundreds of other documents, but in the end there
must be a compelling investment thesis for a buyer to complete the
transaction. Final company valuation reflects the confidence that a buyer
has that an acquisition will contribute to future company earnings or
return to private equity investors.
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| Maritime Professional | 11
